Chapter 1 - The Restaurant Business

History of restaurants | Classification and size of the restaurant industry | Nature of the business | Kinds of restaurants | Requirements of the business | Restaurant profits

Selling prepared food to the public for a profit is an occupation almost as old as civilization, an occupation chosen by millions of people throughout the centuries. Ancient Egypt had inns of a kind. One on record offered a menu in keeping with the modern limited menu—one dish consisting of cereal, wild fowl and onions. Ladies were not allowed. This was 512 B.C. Today ladies are more than welcome.

Bankruptcy was no stranger to the early innkeeper. Through the forgetfulness of his patrons, a Roman innkeeper in 153 B.C. found that a "pay as you leave" plan was not everything it ought to be.

A businessmen's lunch was a good idea back in 40 B.C., when an innkeeper devised it for shipbrokers who were too busy to run home for the noon meal.

Instead of juke boxes and piped-in music, the diner-out in Spain in the year 1125 was entertained by story-tellers.

Until the 18th century there were no separate establishments serv­ing prepared food. The inns and taverns had the tables of the host or table d'hote where everyone sat down to eat whatever was placed on the table. Meals were usually a part of the "room and board," the board being a board on trestles serving as a table.

Coffee was introduced to Paris society in 1668 when the Turkish ambassador gave a party and had the beverage served by beautiful slave girls. England is said to have had coffee earlier, the first coffee house is supposed to have opened in Oxford in 1650. Coffee gained popularity fast and in 17th and 18th century England many coffee houses were started. Some of these developed into private clubs cen­tered around food and drink. The old club at Whites and the Reform Club in London are examples, still very much alive. Chocolate houses and tea houses had their day in the sun, just as cafe expresso houses are currently popular in London.

In Colonial America eating out was done at the local tavern, inn or "ordinary" where beverages also flowed freely. Beer and rum were preferred with flip the most popular drink. The recipe for flip was rum, beer, cream, beaten eggs and spices, heated by plunging a hot rod into it. It was said to be both food and drink—and if you had enough money also lodging for the night.

The first restaurant carried this inscription over the door: "Venite ad me ownes qui stomacho laboratoratis et ego restaurabo vos." Few of the Parisians who saw this sign in 1765 could read French let alone Latin but if they could, they knew that Monsieur Boulanger, the pro­prietor, said, "Come to me all whose stomachs cry out in anguish and I shall restore you."

FIRST RESTAURANTS ESTABLISHED

Monsieur Boulanger's potion of soup he called "le restaurant divin." His "divine restorative" was quite an improvement over the bitter herb and vegetable mixtures brewed by the medieval physicians as restora­tives. A richly delicious bouillon, it attracted fashionable ladies and gentlemen who would not ordinarily patronize the public taverns where eating ran a poor second place to drinking. Also Monsieur Boulanger's Restaurant Champ d'Oiseau charged prices sufficiently high to make the place acceptably exclusive and a place where ladies who were ladies would enjoy being seen. Boulanger lost no time in enlarging his menu and a new business was born. Soon the word "restaurant" was established and chefs of repute who had worked only for private families either opened their own restaurants or were em­ployed by a new group of small businessmen, the restaurateurs.

Delmonico's in New York City is credited with being the first bona fide restaurant in the United States. His first menu presented in 1834 carried a list of a la carte items most of which would not appear unusual on today's menus. The prices, however, would be unusual. (See illustration on page 14.)

Employee Feeding

Food service for employees began in the 19th century and runs into big business indeed. The Bowery Bank of New York City began free meals, with waitress service to its employees in 1834. By 1904 at least one contract feeder was in employee food service.

The first of the big food service contractors was Fred Harvey, a hard driving Englishman who contracted to serve food on the Santa Fe and in its stations from Chicago to Los Angeles. The multi-unit restaurant company appeared about the same time.

One of the early John R. Thompson restaurants in Chicago, a forerunner of the modern cafeteria with self-service and limited menu. The all white interior lent itself to cleanliness but is a far cry from being esthetically exciting.

The serving counter of a new John R. Thompson Cafeteria. The Thompson Com­pany has learned that a luxury cafeteria attracts patrons from higher income brackets. The decor and atmosphere of cafeterias in the past have been de­signed to cater to lower and middle income groups. (Photo courtesy of John R. Thompson Company.)

The first restaurant chain of any size was established in 1891—the J. R. Thompson Dairy Bars in Chicago. Within a few years there were 125 units in operation.

The Oldest Restaurants

Of the thousands of business establishments in this country having histories, only a handful of restaurants have been in continuous opera­tion for over 50 years. The oldest food service establishment is probably the Fraunces Tavern in New York City, a small hostelry with a house specialty of chicken a la Washington, made for George Washington whose store-bought teeth could cope with such a chopped chicken dish. George's teeth, incidentally, are on display at Valley Forge.

Other New York City restaurants that have survived are Ye Old Dutch Tavern, Cavanaugh's, Keen's, the Old Brew House, and Luchow's. No restaurant in Los Angeles is more than 40 years old. Boston has Loch Ober's and one or two others. In New Orleans there is Antoine's, which is proud of having opened in 1840. Chicago has Henrici's which celebrated its 90th birthday in 1958. During their anniversary year a free meal was offered to persons celebrating their 90th birthdays.

The working man's restaurant sprang up by the dozens about the time of World War I and soon after. Curiously the majority of these were operated by newly arrived immigrants from Greece. They were an important part of the restaurant business through the 1930's, but since they are fiercely independent, have not incorporated or devel­oped chain businesses which are so important today.

In the 1920's several large restaurant chains got underway. Stouffers began to grow into a fine table service chain. Hot Shoppes developed a combination table-service and drive-in chain. Cafeteria companies like Forum, Morrison's, S & W, and S & S began to expand.

An early diner, not prepossessing but serving fast food in a friendly atmosphere. The owner had just returned from the service in World War I.

The original WhiteCastle restaurant in Wichita, Kansas, designed and built by Billy Ingram in 1921.

Here is a modern-day WhiteCastle restaurant, in Louisville, Kansas, which takes into consideration the automobile public, and makes use of wide expanses of glass.

The White Castle System illustrates the rapid rise of the fast food restaurants. Started in Wichita, Kansas by E. W. Ingram on a $700.00 investment, the chain now operates 84 hamburger stores. Sales were reported for 1957 as 17 ½ million which includes close to 96 million hamburgers and 777,125 cups of coffee sold. Cost of recent units was $185,000 each.

Biggest of all chains is Howard Johnson's which started as an ice cream stand in Massachusetts. Now the chain grosses over $300 million a year and has more than 700 units.

With the popularity of the auto and the need for parking space the drive-in gained patrons and today is the most dynamic element in the restaurant business. Diners in the World War I era were built to resemble railway dining cars; today they are sleek beauties represent­ing investments up to $250,000 each.

Extent of the Business

Restaurants are defined differently by the various states and by the Federal Government so that restaurant statistics vary. According to the U. S. Bureau of Census, there are 195,128 eating places in this country, or about one restaurant for every 850 persons. The states with the largest populations, New York, California, Pennsylvania— as might be expected, have the most restaurants.

Here are the sales figures and number of restaurants in 1956 for the ten states with greatest restaurant sales:

                                    Number of Restaurants           Sales
            New York                    22,017             $1,518,927,200
            California                      18,673               1,046,647,700
            Illinois                           10,457                  641,155,200
            Pennsylvania                 12,527                  544,791,100
            Ohio                               9,504                  493,369,700
            Texas                           10,747                  445,564,700
            New Jersey                    6,830                  371,144,900
            Michigan                        7,638                  369,236,700
            Massachusetts                5,830                  347,292,400
            Florida                           5,101                  266,193,900

Cities have more meals eaten in restaurants per capita than do most towns and smaller communities. New York City has more than three times the dollar volume of restaurant sales than any other city—close to $1½billion. Chicago and Los Angeles—including Long Beach— are next with about $485 million annual sales. Sixty-two of the larger cities account for well over half of the nation's restaurant business. Cities themselves vary in restaurant business per capita. San Francisco, New Orleans, and Miami are known for restaurants, while Pittsburgh, Cincinnati, or Kansas City do less business per capita. Of all the restau­rants in the country, only a fraction of one percent can offer what Duncan Hines called "Adventures in Eating." Over one million restaurant employees receive some $2 billion a year in wages. In total, commercial restaurant sales are close to $10 billion.

Sales are concentrated in the larger restaurants. Sixteen thousand corporations—about nine percent of the total restaurants—account for approximately 30 percent of the total business. Several restaurants do over a million dollars sales a year and a few go as high as $3 million a year in sales. The great number of restaurants—155,000—have sales of $50,000 a year or less.

Paradoxically, the fast food operations often show a higher percent­age of profit than the more elaborate restaurants. With minimum serv­ice and specialty items, selling price can be low and sales volume increased. The ideal, of course, is to offer quality food in an attractive atmosphere at moderate prices.

THE NATURE OF THE BUSINESS

The restaurant business represents tremendous variations in at­mosphere, serving hours, menus and customers. There seems little in common between the swank dining room in many clubs and the 12?* hamburger heaven. Hours of operation vary from "luncheon only" or dinner service only to 24-hour service. Some restaurants change little over the years. Antoine's in New Orleans and Henrici's in Chicago take pride in having been in business for 80 years and longer with only minor changes in menu and atmosphere. Other restaurants have had to change locations and design every few years to survive.

Although many people have started restaurants having little or no experience, it is the hard way, fraught with hazards. Better to learn one kind of operation well by working for a successful operator or chain. Restaurant corporations like Howard Johnson's, John R. Thompson's, Stouffer's, Morrison's, Hot Shoppes, and Sky Chefs have well developed training programs on a management level. The pro­grams place the trainee in nearly every division of the restaurants so that he learns by doing as well as being exposed to ideas, as in college. Most of the trainee programs are for college graduates.

Kinds of Restaurants

Restaurants can be classified into two large groups, service and self-service. A French style restaurant with its waiter captains, waiters, and assistants represents the ultimate in service, with as many as four or five persons waiting on a single guest. At the other extreme is the walk-up or drive-in where the customer places his order at a window, pays for it, and eats it, unattended, in his car. The usual table-service restaurant has been traditional, but by the 1920's cafeterias had be­come popular in the United States and today there is a trend toward more self-service. Some restaurants are set up to offer a variety of service-counter, table, and buffet type service.

Another way to classify restaurants is to group them according to the extent of the menu offered. At the one extreme is the supper club such as the Le Pavilion or Club 21 in New York City with an elaborate menu of haute cuisine dishes. At the other extreme are restaurants with single item menus featuring such items as steaks, pizza pie, or ham­burgers.

Counter service, specialty restaurants, and the cafeteria are some­where in between as regards menu. Here is a breakdown from simple to elaborate in service and menu:

Table service with extensive, elaborately prepared items;
Table service with limited menu, simple food items;
(Most specialty restaurants would fall into this group)
Counter service, usually limited menus;
(Snack bars, luncheonette, coffee shops would be examples)
Drive-in with car attendants and often waitresses
(Diners would be grouped here also)
Cafeteria with extensive menu
Cafeteria with limited menu
(School lunch rooms and most employee cafeterias are in this group)
Drive-In or other restaurants without service

Dining room beauty achieved by carpeting, heavy chairs with padded arm rests, linen, stemware and lighting. Dining room of the Houston Club. (Photo courtesy of Henry O. Barbour, Manager.)

A modern diner, Luther Kohr's in Clearwater, Fla. representing an investment of at least $1,000 per foot in length of the building. (Photo, courtesy of Diner Drive-In Magazine.)

Some restaurants offer counter service, table service, and even cafe­teria service, all served from the same kitchen.

The two variables—amount of service and type of menu—are important distinguishing factors among restaurants. In large part they determine the complexity of operation. The shorter, simpler menus with less service require limited skills and knowledge. A sandwich shop operator may not do well at all in a full-menu table service restaurant. Segments of cafeteria operation are unknown to operators of others kinds of restaurants. Some specialized and different informa­tion is needed in employee food service. The same is true for hospital food service and for school lunch feeding. Country and city club food service, with its emphasis on high cuisine requires specialized informa­tion for fine performance. An American plan resort where the price of two or three meals a day for the guest is a part of the room rate, requires still different information regarding menu planning, menu pricing, and service. Whenever alcoholic beverages are sold with food, another body of knowledge—beverage purchasing, merchandis­ing, mixing, and control—is useful.

Artistry can be an asset. Enjoyment of excitement and ability to make rapid adjustments are virtues. Personnel problems are the greatest of all problems, but secondary when first establishing a restaurant. Decisions regarding finance, location, menu, and atmosphere are critical in getting a restaurant into a profit position.

Attitudes toward restaurateurs vary. Some restaurant operators are highly respected and esteemed; others may not be. A few men have made fortunes in the business; as chains grow, more will do so. Many heartaches with great financial and health sacrifices have occurred and will probably recur in the future. Some operators have not been able to live well with success.

Some restaurants call for long grueling hours of work by the owners. Others are comparatively easy to operate. Restaurant work varies from the hot, disagreeable task of pot washing to the work of policy making in a multi-million dollar corporation. Place of work can be over a hot stove or in a beautiful, air-conditioned executive suite.

The business can be highly standardized, such as a Howard John­son's restaurant, or it can be free wheeling, such as offered by a high-class catering service for private parties. It is a business which can use all of the imagination, ingenuity and drive a person can possibly possess. Like most businesses, perseverance and flexibility are valuable and in most cases required.

Restaurant Profits

Profits are figured either as a percentage on the investment or as a percentage of the gross income either before or after income taxes. Profit figures are usually stated on sales rather than investments. Vari­ous lease arrangements make investment figures difficult to compare.

Considering the business as a whole, net profit on sales range from 5 to 8 percent in the usual successful operation. Profits vary greatly with the style of service, volume of sales and type of owner. When profits are figured as a percentage of sales the limited service, fast-food style of operation stands out. Here are the percentages as stated for one of the walk-up drive-in chains:

Food costs                        40-45% (includes 5% paper cost)
Labor                                 17-22%
Indirect overhead                       6%
Rent                                         6%
Depreciation                             2%
Miscellaneous                           2%
Advertising                               2%
Net Profit                           20-25%

Percentages of profit are usually lowest in full-menu, total-service operations; higher in cafeterias, and other restaurants where labor cost is less. Total dollars of profit are higher in some of the atmosphere restaurants where volume may exceed one million dollars a year. Dollars are bankable; percentages are not.

A problem in figuring profit is the proper allocation of the owner's salary. Quick service, 24-hour restaurants that have been known to cost $10,000, net an equal amount each year. If the owner's time is ac­counted for and a reasonable salary paid, the "net profit" is consider­ably reduced.

The First National City Bank of New York reports that leading hotel and restaurant corporations in this country netted 9.3% on their investments in 1957, and 3.3% on sales. Compare these figures to the leading grocery store corporations which net 15.8% on investment but only 1.4% on sales in the same year.

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